Employment Termination by Mutual Agreement

Yesterday we looked at termination of a Mongolian Employment Agreement due to an employee’s failure to meet disciplinary standards. In this post, we will look at another option for ending an Employment Agreement – termination by mutual agreement.

Where a company is not satisfied with an employee’s work performance but is not able to point to a series of breaches of discipline or an occurrence of serious breach and does not have procedures in place for a review Commission, the company has the option to directly negotiate with the employee, via a proposal to the employee to terminate employment. Mongolian law allows for termination of an Employment Agreement at any time if both parties agree. Often the agreement will entail some amount of severance compensation for the employee. Such severance compensation is not legally required but is required as a practicality to obtain the voluntary departure of the employee. Where a mutual agreement on termination is reached, it will legally be considered termination under the initiative of the employee, and the company’s risks of rulings against it at court are greatly diminished.

If employee agrees to such proposal, an employee must provide employer with written termination notice and may leave his/her workplace 30 days after presenting termination notice, unless the parties agree otherwise.

An employee’s written termination notice should come solely from employee’s own will and without improper influence or pressure from employer. So, if client will choose to negotiate with the employee, it is best to make sure the dismissed employee is happy with the termination deal and has no reasons to go to court against the employer. This is obviously most easily achieved by offering the employee generous terms of departure.

Breach of Employment Discipline

We have been posting series of articles describing the process for termination of an Employment Agreement for failure of the employee to perform. In short, it is not easy unless the company has a clearly defined and regularly used process for employee performance evaluation via a special review “Commission”. In practice, many smaller companies may not have such rules and will not have the time or resources to devote to such a review process by a formal Commission. If this is the case, what alternative options are there for a company to terminate an unsatisfactory employee?

If employee performance is an issue, our Mongolian lawyers advise our clients to look for patterns in breaches of employee discipline. Job “performance” and “discipline” are different grounds for termination under Mongolian law. Article 40.1.4 of the Labor Law provides that an Employment Agreement may be terminated at the initiative of the employer if the employee repeatedly “breaches employment discipline” or conducts a serious breach, as specified in the Employment Agreement, for which immediate termination of the Employment Agreement is stipulated. This may be useful as in many cases where an employee’s performance is inadequate there will also be breaches of discipline to consider.

Many Mongolian companies treat issues such as being late to work, poor work performance, or non-performance of assigned tasks as a breach of employment discipline under Article 40.1.4. Companies normally will specify within an internal employment handbook or rulebook a list of actions and behaviors which will be considered breach of employment discipline.

Where an employee has repeatedly breached employment discipline as outlined in the company rules the employer may choose to terminate the Employment Agreement. In making such determination, the employer must demonstrate multiple separate breaches of discipline. Each breach must be determined and proven separately. Each breach should be supported by a separate item of evidence. It is not mandatory for employer to impose disciplinary sanction on employee for every occurrence of breach, however the breach must be formally noted (usually via a disciplinary warning letter).

Under article 131.1 of the Labor law there are three types of disciplinary sanctions the employer may impose on an employee: a warning, decrease employee’s salary by up to 20 percent for up to 3 months, dismissal (termination of employment). Legislation does not require the employer to impose disciplinary sanctions in any particular order.

A Serious Breach under Article 40.1.4 includes actions or inactions which contradict the Employment Agreement obligations of the employee and which cause negative impact on the rights and interests of the employer such as damage of the employer’s property or harm to employer’s business or reputation. Actions which will be considered serious breach must be specified (listed) in the Employment Agreement. In the event of occurrence of any of the specified serious breach events, the employer may immediately terminate the Employment Agreement (a single occurrence is enough to support termination).

So, where an employee whose job performance is a problem also frequently comes into the office late or violates company policies regarding use of vehicles or communications with clients or co-workers, these disciplinary infractions may be used to build a case for termination of employment due to breach of discipline. Assuming all infractions are properly documented, this approach is less likely to be found to have been improperly applied by a court.

Termination of employment under Article 40.1.4 does not require severance compensation and there is no requirement for a notice period. Companies may consider termination under Article 40.1.4 in alternative to forming a Commission and doing a performance evaluation. A series of infractions and warning is all that is required to establish the legal case for termination.

What is the Mongolia Employment Performance Review Commission?

We had mentioned in our previous blog post about Employment Agreement termination due to lack of performance that a determination on non-performance must be made by a formal “Commission” of some sort. What is this Commission? How is it formed? Who should participate and sign off? What are its functions? We will review these questions below.

We note that in most cases it will likely not be appropriate to establish a review Commission and organize evaluation of skill or qualification for a single employee, regardless of whether management may think this employee’s performance has not been sufficient. As a matter of practical law in Mongolia, such a situation will likely be viewed by a court as discriminatory and likely based on personal reasons not truly related to job performance.

What exactly is the Commission required by Mongolian law? It is not simply a Human Resources professional or department. The company should have an established internal policy regulating the establishment and conduct of the professional review Commission, including appointment of members, number of members, rights and responsibilities of commission, operational procedures of commission, and other key points.

Within such policy there should be terms and regulations as to how employees’ skills or qualifications are to be evaluated for different jobs and positions taking into account the key skills and qualifications or requirements for different positions.

The Commission may take the form of an annual performance review conducted by Human Resources and other personnel duly appointed to participate according to the company’s rules for conduct of the Commission. During which the performance of each employee is evaluated along clear criteria set out for their respective position.  If an employee’s performance was found to be unacceptable by such Commission, the employee may be rightfully and legally terminated at initiative of employer. The Commission may include members of Human Resources department but should also include additional management personnel.

In practice, individuals in the following positions are often appointed as members of the Commission:

  • member of organization’s senior management);
  • head of unit/division/department;
  • employee’s supervisor;
  • HR manager(s).

The company Human Resources unit usually organizes the evaluation: assists and advises the Commission to plan and organize the evaluation, announces the upcoming evaluation, organizes actual evaluation process, combines results, presents results to the commission for review, etc. The Commission itself plans the evaluation, develops the tests and tasks for evaluation, reviews the results of evaluations, presents the results and reviews of evaluation to organization’s management, etc. Based on the evaluation results and Commission’s reviews the employer decides whether to promote, send to training, or dismiss respective employees. In most company policies there are two types of evaluation: scheduled and unscheduled evaluations. Scheduled evaluations may take place annually, or once in two or three years. It depends on organizations preference. Unscheduled evaluations usually take place at the request of employee: when an employee requests for promotion or for transfer to new job or position. Unscheduled evaluation may also take place at the initiative of employer: when employer proposes to employee a promotion or transfer to new job or position.

It is interesting to note that a spontaneous employer initiated review Commission will be considered valid for purposes of a planned promotion, but as mentioned above, will likely not be considered valid for purposes of intended termination.

Terminating Mongolia Employment Agreements for Non-Performance – Not So Fast

A client recently came to our Mongolian lawyers with a question regarding termination of an Employment Agreement (check out yesterday’s post to understand the differences between an Employment Agreement and an Employment Contract) for inability of the employee to meet performance expectations.

Article 40 of the Labor Law sets out the grounds for termination of an Employment Agreement at the initiative of the employer. Pursuant to Article 40.1.2, an Employment Agreement may be terminated at the initiative of the employer if it has been determined that the employee fails to meet the requirements of the job or position due to a lack of professional qualifications or skills. The Supreme Court of Labor Law as issued an official interpretation of this provision clarifying the meaning. The official interpretation states that the provisions of article 40.1.2 of Labor law refer specifically to an official finding and formal decision as to the employee’s condition as issued by a professional skill assessment “Commission” established by the employer organization (the company) or industry (in which company operates). The official interpretation of the law also states that the employer’s determination of the employee’s professional ability and skill for the job or position as unqualified for reasons such as absence of tertiary education or an education certificate shall not be grounds for the employer to terminate the Employment Agreement. In other words, the actual skills demonstrated on the job must be considered through a formal review process.

If the employer wants to dismiss an employee on the grounds of Article 40.1.2 of the Labor Law, the employer must obtain a proper evaluation of the employees’ skills or qualification and a decision of a Commission (as described above) that states that the employee is unqualified for the job or position. If such is not obtained and the dismissed employee is unhappy with the employer’s decision and goes to court, there is a high chance that the employer will lose in the court and will have to re-hire the employee or potentially pay additional damages in compensation due to illegal dismissal.

Proper termination of employment on grounds of Article 40.1.2 of the Labor Law should be done through the employer’s establishment of a professional skill assessment Commission. Such commission should properly organize an evaluation of skill or qualification of all employees with respect to their jobs and positions, including presentation to employees of official results of evaluation, obtaining each employee’s opinion on his/her evaluation results, presentation of commission’s decision, and so on.

If based on the official results of the review and commission’s decision the employer decides to dismiss the employee, employer must provide a written Termination Notice to the employee 1 month prior the termination. The Employer must issue a decision (usually a CEO’s order) specifying a period for the employee to hand over his/her duties, the date of employee’s last work day (same date as termination of Employment Agreement), and the amount of severance pay. Pursuant to the Labor Law, when terminating employment on grounds of Article 40.1.2 the employer must pay to employee a severance pay in the amount equal to at least one month average salary of employee.

Compliance with all proper procedures by the employer leading to the termination is important. In practice, employees dismissed on grounds of article 40.1.2 of the Labor law are frequently unhappy and often go to court against employer. In such case, for an employer who did not comply with all proper procedures as mentioned above (terminating the employee via the Commission process) this may result in a court finding in favor of the employee. If the employer is not able to provide clear documentary evidence that the employee indeed does not qualify for the job or position, the court is likely to find that the termination was based on personal (non-professional) reasons, resulting in a ruling against the employer.

Note that there are other options for an employer initiated termination under Mongolian law, which we will review in coming blog posts.

Mongolia Employment Contracts: One Size Does Not Fit All

A longstanding client of the firm which operates a company in Mongolia posed a simple question to our Mongolian lawyers, asking the best way under Mongolian Employment law to fire an employee who has not lived up to performance expectations. The question is interesting because it requires first determining what type of employee is to be terminated. In Mongolian law, not all employment relationships are equal. There are two difference kinds of employment in Mongolia each with different rules and different processes for termination of the employee.

The Labor Law of Mongolia provides for 2 types of employment: (1) Employment pursuant to an “Employment Agreement” and (2) Employment pursuant to an “Employment Contract”. It is important to understand that that these are two distinct types of employment under Mongolian law, subject to different rules, not simply a difference in translation.

In Mongolia, most employment relationships are pursuant to an Employment Agreement, which is basically described as an agreement to be employed for general purposes. While the actual role the employee performs may vary, no particular or unique skills are required on the part of the employee. This type of employment is defined by an Employment Agreement.

However, under the Mongolia Labor law, when an employer hires someone specifically for his/her high skills or unique talents an Employment Contract may be concluded, rather than a simple Employment Agreement. The Mongolian government puts out a list which sets out the positions subject to an Employment Contract.  According to the list, an employer may conclude an Employment Contract with Directors, Chief Executive Officers, General Managers, Division (department) Managers, and Chief (head) of Divisions (departments).  Other types of employees may only be hired pursuant to an Employment Agreement.

There are several differences between an Employment Agreement and an Employment Contract. Generally, an Employment Agreement for a permanent position is concluded for an indefinite term or if the parties mutually agree for a specified term. In the latter case, at the expiration of the term of the Employment Agreement if the parties do not propose its termination, and the employee continues to perform his/her work, the Employment Agreement is considered to be extended for the initial term.

Whereas, an Employment Contract may be concluded for up to a maximum of 5 years. When concluding an Employment Contract, among other terms, the parties must specify in the Employment Contract a detailed procedure for the evaluation of performance of the employee under the Employment Contract. When this is included in the Employment Contract, it is relatively easy to conclude upon evaluation of the employment contract whether the employee has sufficiently performed his/her duties. If the employee as performed sufficiently, the Employment Contract may be extended.

An Employment Contract must specify in detail all duties, responsibilities, rights, privileges, benefits of the employee, including a description of assets to be given under employee’s responsibility, the rules of possession, the use and disposition of such assets, final results to be achieved by the employee, the liabilities of the employee. Because under an Employment Contract the employer hires the employee specifically for his/her high skills or unique talents, such employee has more responsibility, accountability, rights, privileges and benefits than a “regular” employee employed under an Employment Agreement.

Basics of Initial public offering (IPO) in Mongolia

In recent years several Mongolian private companies have gone public, or conducted an initial public offering (IPO), very successfully. This shows that interest and knowledge about IPO is growing both among companies (businesses) and public (investors).

As you may know, an IPO is when a private company or corporation raises investment capital by offering its stock (shares) to the public for the first time. Initial public offerings are often issued by growing companies seeking capital to expand, but they can also be done by large privately-owned companies or corporations looking to become publicly traded. Prior to an IPO the company is considered private, with a relatively small number of shareholders made up primarily of early investors (such as the founders) and professional investors. The public, on the other hand, consists of everybody else – any individual or institutional investor who wasn’t involved in the early days of the company and who is interested in buying shares of the company. The Law on Securities Market requires that to conduct an IPO the issuer must offer its stock to at least 50 and more investors.

In an initial public offering, the issuer, or company raising capital, procures the assistance of an underwriting firm (underwriter), to help determine the offering price, amount (number) of shares and timeframe for the market offering. When a company initiates the IPO process, a very specific set of events occurs. The chosen underwriter facilitates all of those steps. Primarily, an external IPO team is formed, consisting of an underwriter, law firm, audit company, appraiser company, and other experts if required. The external IPO team compiles information and documentation regarding the company (issuer), including financial performance and financial statements, expected future operations, corporate governance and corporate documents, and prepares IPO prospectus, legal opinion, audit report, asset valuation report and other necessary documents respectively that are to be filed to Financial Regulatory Commission of Mongolia (FRC). After the company files its prospectus and other necessary documents with the FRC, it sets a date for the offering.

Going public can be a great way to raise money, increase your company’s profile. However, there are number pros and cons in going public. So, when considering conducting an IPO, one must do all proper researches, calculations and analysis. In doing so we advise to seek professional advice and services from FRC listed underwriters, law firms, audit companies and appraiser companies.

Our law firm is FRC listed. Here at LehmanLaw we have FRC certified lawyers, who will provide you with qualified legal assistance.

Mongolia is Introducing E-Filing System for Intellectual Property

The Mongolian Government’s Action Plan for 2016-2020 aims that the state functions have been introduced the online system for establishing reliable, accessible and express public services based on paperless services. The most ultimate source is that the article 8 of Patent law sets forth the filing an electronic application for invention, industrial design or innovation.

 

In April 26, 2018 as the World Intellectual Property Day, IPOM publish (Online Data system) and E-Filing (Online Filing System) were introduced for developing the use of the intellectual property database and facilitating the filing process for IP rights.

 

Above-mentioned systems allow to register the invention electronically and obtain electronic information on patents and trademarks.

 

In today’s highly developed IT platform, the filing electronic application for IP rights and the obtaining of patent information for the research work are an important part of saving time and paper. Furthermore, the researchers, inventors and producers are able to find the similar researches with their research work in online Intellectual Property database. It will definitely helpful to develop more competitive way of creating the inventions as well as avoiding any risks in the future.

Changes to Customs Tax and VAT Exemptions

During Parliament’s regular session on May 10, a final review of amendments to the Value-Added Tax Law and Customs Tax Exemptions Law were conducted and approved with a majority vote from Parliament members in attendance.

According to the amendments, all imported wood construction materials except oriented strand board (OSB), standardized pre-fabricated wood building structures, and logs will be exempt from customs duty. Other imported wood products, except those related to forestry and horticulture, will be exempt from value-added tax until 2022.

The Amendments to Value-Added Tax Law and Customs Tax Exemptions Law will be effective from January 1, 2018.

Issues with Effective IP Enforcement Actions in Mongolia

Several clients in recent months have contacted the firm requesting assistance in tracking down and stopping intellectual property infringers in Mongolia. After working closely on many of these cases, our Mongolian Attorneys and licensed Intellectual Property specialists are among the forefront of the Mongolian IP enforcement practice in Mongolia. Our team has a few key insights that those doing business in Mongolia should be aware of.

In Mongolia, the systems for investigation and resolution of IP infringement issues is relatively unsophisticated. IP infringement cases often are not able to be resolved or punished effectively due to a lack in the number of state inspectors and the resulting workload for those inspectors who are on the job. Only a few State Inspectors handle IP issues, and such inspectors are obliged to inspect shops or markets selling infringing goods throughout Ulaanbaatar in accordance with the specific demands of each case. It is often very difficult for the state inspectors to identify possible infringers. State inspectors will normally punish known infringers identified during an IP enforcement action by warnings, confiscation of infringing goods, and fines for repeat offenses. General lack of education in Mongolia account IP and the limited effectiveness of such examinations result in infringing products for which sales have been shut down at a particular market showing up again for sale elsewhere at a different shop or different market.

Another problem is that the estimation of intangible asset related damages caused by IP infringement is not clear and is not well defined or regulated under law. Though the law says such damages will be settled under applicable regulations and administrative acts, regulation applicable to estimation of intangible asset related damages caused by IP infringement is unclear in Mongolia. The complaint regarding intangible asset associated damages cannot be resolved properly under such procedure. In fact, it is very few cases which filed complaint concerning the said infringement with IP office and there is no good practice on this issue.

The Mongolian government needs to pay attention on eliminating violations of intellectual property rights and properly compensating damages caused by IP infringement.  Those seeking effective IP enforcement in Mongolia need to come prepared with a large amount of investigation preformed and research compiled ready to be presented in a complaint to the IP Office, and should have a clearly documented and easily calculatable claim for damages caused due to the alleged infringement.

 

Alternative Dispute Resolution: Finalizing Mediation

In a recent post we have previously discussed the practical aspects of mediation in Mongolia. Mediation is one of the better alternative dispute resolution methods for those who are seeking short-term and inexpensive way to settle a dispute. In this article we’ll explore the closing of the mediation process and aftermath.

The mediation process is generally considered more prompt, inexpensive, and procedurally simple than formal litigation. It allows the parties to focus on the underlying circumstances that contributed to the dispute, rather than on narrow legal issues. The mediation process does not focus on truth or fault. Questions of which party is right or wrong are generally less important than the issue of how the problem can be resolved. Disputing parties who are seeking vindication of their rights or a determination of fault will not likely be satisfied with the mediation process.

Nonetheless, if in the mediation process a resolution is reached between parties, a written settlement agreement must be executed. Such settlement agreement is binding for all parties of dispute and considered enforceable contract. As mentioned in our previous post mediation centers operate at courts of first instance (court-based mediation centers), and may operate at government authorities, NGOs and professional associations (other mediation centers). Settlement agreements executed by mediators of a court-based mediation center become a sort of court judgement, as judge of corresponding court issues a court decision confirming such settlement agreement. And if parties fail to voluntarily perform their obligation under settlement agreement, it shall be enforced same as court decision. On the other hand, while settlement agreements executed by mediators of other mediation center are also binding for parties of dispute, these are not enforced same as settlement agreements executed by mediator of court-based mediation center. If parties fail to voluntarily perform their obligations under such settlement agreement, parties have the right to pursue their claims in other forms (such as litigation or arbitration).

However, if in the mediation process parties could not reach any resolution, or parties did not actively seek any resolution, or for other reasons the mediation process could not further proceed, the mediation process shall be terminated. At this point parties of dispute may decide to resolve their dispute through litigation or arbitration.